Soldier Can’t Discharge Military Debt in Bankruptcy, Court Rules

A recent case in North Carolina Eastern Bankruptcy Court clarified some issues regarding the ability of certain debts to be discharged in Chapter 7 bankruptcy proceedings. Ryan v. Defense Finance and Accounting Services outlines the case of a soldier who received an honorable discharge from the U.S. Army after re-enlisting for six years and accepting a re-enlistment bonus. Upon his involuntary discharge, the soldier filed for bankruptcy and attempted to include the unearned portion of his bonus in those proceedings.

In August 2012, Kyle Ryan re-enlisted in the U.S. Army for a six-year tour of duty. Ryan agreed at that time to repay the unearned portion of his $18,200 re-enlistment bonus if he could not complete six years of service under his agreement with the U.S. Army. After serving just 15 months of his six-year obligation, Ryan tested positive for hydrocodone on August 21, 2013. He claimed to have taken one of his wife’s painkillers to treat pain caused by an unreported neck injury.

Ryan was honorably discharged from the U.S. Army in March 2014. A portion of his unearned bonus was withheld from his final paycheck from the Army; the remainder was billed to Ryan directly. On May 12, 2015, Ryan filed for Chapter 7 bankruptcy and sought to have the remaining unearned bonus debt, a sum of $9,667.21, included in these proceedings. He specifically addressed the issue of the debt associated with the unearned bonus by filing a Proof of Claim regarding this debt on August 7, 2015. The bankruptcy was discharged under the provisions of Chapter 7 on November 9, 2015.

The Defense Finance and Accounting Service (DFAS) filed an answer to the request for relief included in Ryan’s bankruptcy on October 7, 2015, asserting that the DFAS claim is exempt from discharge in Chapter 7 bankruptcies and providing a full accounting of the exact amount of the debt still owed. On January 28, 2016, DFAS filed a Motion for Summary Judgment in the amount of $9,765.14 against Ryan, who responded by filing an Objection to Defendant’s Motion for Summary Judgment. During the resulting court proceedings, the DFAS lowered its claim to $8,989.64. This still represented a severe burden for Ryan financially.

Ryan argued that the entire amount should be discharged in the bankruptcy and that, if not discharged, he should owe only $3,815.31 to DFAS. He further asserted that his separation from the U.S. Army was not voluntary and that, consequently, he was not responsible for the debt incurred. The court considered the evidence presented and reached its decision on March 31, 2017.

Unfortunately for Ryan, not all debts are dischargeable in bankruptcy. The U.S. Bankruptcy Court for the Eastern District of North Carolina, Raleigh Division, found that Ryan was required to repay the unearned bonus because he filed bankruptcy less than five years after the date that this debt was incurred. Had Ryan waited until five years after the bonus contract had been terminated, he might have been able to discharge this debt along with others during his bankruptcy proceedings.

Ryan’s case highlights the need to consult with a qualified bankruptcy attorney before beginning any legal actions in the state of New York. Bankruptcy is a complex process that requires an in-depth knowledge of the law. By working with a qualified and experienced NYC bankruptcy attorney, you can protect yourself against unwanted legal complications while enjoying the best possible outcome for your case.